What To Expect In The Next Five Months: China Economic Outlook

There is, perhaps, no relationship more important to the world economy and global peace than the US-China relationship, and Page took a moment last week to understand this moment in time. Members and potential members of Page China and Asia, along with Page President Roger Bolton and International Vice President Peter Debreceny, joined an Insight Forum titled, “What To Expect In The Next Five Months: China Economic Outlook”. 

We invited the famed China Economist, Arthur Kroeber, Founding Partner and Head of Research at Gavekal Dragonomics, a China-focused economic research firm with offices in Beijing and Hong Kong; and partner in its parent firm Gavekal, to share his views and field questions with us. Arthur is also the author of the popular book, China’s Economy: What Everyone Needs to Know (2nd edition 2020), published by Oxford University Press.

Arthur offered views on a few macro hurdles facing the Chinese economy, shared comments on U.S. Speaker of the House Nancy Pelosi’s visit to Taiwan, supply chain challenges and more.  Among the takeaways:

• Relationship Troubles: We have entered possibly the lowest point in the US-China relationship since the 1980s. This is a result of continued erosion of trust on both sides and has been accelerated by the visit to Taiwan of Nancy Pelosi, Speaker of the US House of Representatives.
• Short-term: The headwinds are strong and policy is constrained, and reaching the targeted 5.5% growth target for the Chinese economy will be a challenge. This is a result of lingering impact of Covid lockdowns (depressing consumer demand) and a structurally weak property sector. Still, China could achieve growth of around 4.5% this year and next, which is impressive for a country the size of China. China’s weak Q2 numbers reflected particular challenges presented by COVID-19, and these could linger into Q3 as well. Fortunately, the Renminbi has stabilized after a sharp Q1 drop, and it is still very strong in trade-weighted terms. 
• Long-term: President Xi has a strong strategic vision of a more disciplined, self-reliant China, yet managing underlying economic factors will continue to be a challenge.
• De-Risking The Supply Chain: Kroeber touched on actions by many MNCs working more intently on de-risking their supply chains. Global pandemic challenges are only one factor, however, with geopolitical risk adding additional concerns.
• Green Shoots: The US-China relationship continues to be of vital importance, and less political areas such as climate control and healthcare offer possibilities. Restoring trust, however, in the next few years remains difficult.

Highlights of Arthur Kroeber’s Page Insight Forum discussion are here (available to Page members only), and he was kind enough to share a Gavekal Dragonomics presentation on China After (Or Between) The Lockdowns here.